Property Tax Gets Personal

Most people don’t really like paying taxes, but it’s nearly impossible to escape the multitude of tax types that face every day personal and professional life. Sales tax, payroll tax, income tax, and property tax are just a few common tax-types that get paid regularly, sometimes without even thinking too much about it. While many people do not dwell very often on the theories behind the practice of taxation, luckily tax policy experts and accountants do. Despite the tax codes in the United States having a famously complex reputation, taxes break down into discrete buckets making them (somewhat) easier to understand.

Sales tax and property tax are common “ad valorem” taxes encountered every day by business owners. An ad valorem tax, Latin for “according to value”, is a tax amount based on the value of a transaction or property. In the case of sales tax, this value is usually imposed at the time of the sales transaction. Sales tax is considered a consumption tax charged during retail transactions on the sales of goods every time the good is sold. Sales taxes are also set rates established at the local or state level and differ from state to state. They do not change based on a person’s wealth or income.

Property taxes are like sales taxes, but not based on actual retail transactions. Instead, property tax is calculated on the assessed value of the property determined by the government agency. The requirements for property tax vary from state to state, but all are generally due annually. And here’s where it gets personal….

Personal property taxes are a form of taxation of what is defined as a tangible personal property. Assets owned by the taxpayer that are movable, not affixed, and used for the business such as machinery, equipment, computers, supplies, and furniture are all considered tangible personal property and assessed a tax rate for value. Property classification according to various uses or types serves as a basis for adjusting the rate of tax.

Each year, businesses receive a “Schedule B” from the state tax assessor to list all tangible equipment acquired or disposed of during the previous year. Companies need to keep detailed records of all personal property, including original purchase price and depreciation, to calculate and report the appropriate tax to the property assessor. Unlike real estate property tax where appraisals are based on fair market value and averaged across an entire jurisdiction, personal property appraisals are based on the actual cost of the property minus yearly depreciation.

Since all personal property taxes are imposed at the state level, the rules across the country differ. Each state has its own specific form that must be filled out to report personal property tax. Here is a link to the State of Tennessee Tax Schedule “B” form: